RETHINKING TWITTER

’

S BUSINESS MODEL

WRITTEN BY

ACHA

EKEMAN

‐

FOUNDER

OBIYA

FOCUS ON MARGIN

‐

RICH AND HIGH

‐

VALUE SMS ADVERTISING SALES

A lot of blog posts have been written about Twitter no longer deliveringoutbound SMS over its UK or European number. Instead of talking moreabout the same, I'll provide insights and make suggestions how to maketheir business model work instead of simply writing opinions such as

"without Twitter actually having figured out a business model yet, it was

always destined to be this way…"

(paidContent:UK). On top of that, the co‐founder of Twitter, Biz Stone,got his PR completely wrong talking about a costly situation created by his users: "Even with alimit of 250 messages received per week, it could cost Twitter about$1,000 per year to send SMS outside of Canada, India, or the US." Howcan you ever publicly talk about your customer 'costing' you money. It isyour lifeblood of your company! Time for Biz Stone to learn a thing or two

about media, mobile advertising, monetization…

According to TechCrunch,Twitter gets about $0.020 to $0.031 per incoming text message (also called Mobile Originated message or MO),and according to Mike Butcher and the FT Twitter is paying between £0.010 and £0.030 per outbound message (Mobile Terminated, or MTmessage). Roughly converting this to USD: $0.020 and $0.056. Importantto know: Twitter only transmits 140 characters and leaves 20 characters

open for… mobile advertising of course!

The beauty of Twitter is that for every MO, or in other words, for everyuser sending in a piece of content to Twitter, the system triggers amultitude of MTs, or people receiving the content over SMS in an alertedway. This is an almost perfect example of a Social Media network. Noeditors, moderators, or humans sitting in between users sending incontent, and the community receiving content. No paper, computers,television screens, but a fully automated almost complete mobile servicedriven by servers, software and mobile networks. Talking abouttechnology!

Now, let's start to build up their business model, and indirectly theirrevenue basis. Let's assume a user sends a piece of content over SMS intoTwitter: "I have a hangover today, don't mix beer and wine" and this useris followed by 10 people. Twitter will receive about 3 cent from the MOand pays let's assume on average about 3 cent [$0.020 to $0.056] forevery outbound MT, or 27 cent in total for sending ten messages [30

–

3 =27]. In marketing terms: the cost to reach 10 people is 27 cents. Realize,this is a fully opted‐in service(Twitter is a subscription service) triggeredby a user‐activity, not by editors and media moguls publishing paper!If we scale this up to a $1,000 cost generated by a single user, then Iconclude for the sake of Twitter's business model, that a single user cancreate a mobile media inventory of 37,000 SMS impressions per year (or37,037 to be exact), by simply dividing $1,000 by $0.027! Mobileinventory has the meaning of monetizable interactivity for advertisingpurposes.With regards to the sms advertising product, you have two copies to sell.The most valuable is a

‘

Full Message Copy

’

which is a 160 characteradvertising messages followed after or before the Tweet. Within theTweet you can insert a

‘

Teaser Copy

’

which takes up the available space,could be 20 to 60 characters, introducing the Full Message Copy. Youprice the products in a CPM model.In terms of CPM prices in the mobile media world, Twitter has to createadvertising deals from $27 upwards, just to be cost‐neutral. So, instead of blaming the consumer to be the problem, he is simply part of thesolution, as this user just created a 37,000 impression mobile advertisinginventory. In terms of CPM prices, I would enter the market with a $50 to$100 CPM price point, depending on the number of characters used: 20characters for a $50 CPM (approx. 20% margin); and for a dedicated 160character follow‐on mobile advertising messages I would set the price at$100 (approx. 70% margin!!!). Reference: LinkedIn sells online advertisingat a $75 CPM.Even at a price‐point of $50 with a +20% margin, you can outsource thesales. Media buyers are looking for a 15% commission. To summarizeTwitter: perfect scalability in terms of technology and business, fullyautomated platform, great user experience, outsourced sales, and still

making 5% on every outgoing message, doing nothing, just keeping it in agood shape and dealing with huge volumes... we are talking hundreds of thousands outgoing messages per day!The difficulty: it requires advertising sales skills to convince advertisersabout the advantages of mobile media: the device is always switched on,location can be pulled from the network, and tweets received frompeople you follow are always read, as you show an interest in thatperson! A dream for every marketer to get involved in that kind of communication!Big question now: how sustainable is it?I see three problems with Twitter:

ROBLEM

#1:

ANDOMNESS

the way the platform works is that anyonecan request to become a follower of a person. The community isconnected in such a 'woven' way that it is very difficult to extract anytargeted information from (a) the context (b) the community and (c) thecontent. Having no user patterns, content categories, or demographicsavailable will make it difficult in time to sustain the mobile advertisingCPM price.

ROBLEM

#2:

OREDOM

: the type of communication over the Twitterplatform is very fluid. Although having some kind of real‐time alertinginformation about what your friends are doing, how they are feeling,what they are reading, seeing, experiencing might be great for the firstcouple of weeks, but after a while you become more selective about thealerts and tweets you want to receive.

ROBLEM

#3:

NTERACTIVITY

: for me personally the most annoyingmissing thing about Twitter is that I cannot respond or interact overTwitter from a received tweet. There was no direct interaction possible onposted content, maybe something for Twitter to think about. This could just increase the SMS traffic volumes by probably another 300% or so.With our experience, we

’

ve done things differently: our choice of contentto build up a opted‐in SMS advertising inventory was 'Classifieds' allowsus to understand the context (buying or selling), popularity &ranking (measurement), and to define vertical content categories(automotive, housing, etc.). at Mobiya we have also a 100% bi‐directionalinteractivity (not like Twitter or Blyk,simply 'broadcasting' SMS